Liverpool’s Sad Transfer Plan for 2020 Summer – Sell Ancillary Players, Buy Nothing, Count on the “Kids”

Coming off winning the 2020 EPL title, fans are looking to see how Liverpool FC can replicate their success and make it two titles in a row. Rumors are flying of potential targets, and dreams that the cavalry is riding in to reinforce the EPL champions are rampant. Thiago Alcantara has already chosen his number, Kalidou Koulibaly is already BFF’s with Virgil Van Dijk, and every player this side of Sergio Ramos (we all remember the 2018 Champions League Final) will be joining the team. But there is a terrifying truth nobody has considered, acknowledged, and even thought about.

This summer, the summer of 2020, EPL champions Liverpool will be a selling club. Let that sink in for a minute; the EPL champions, the team that has previously posted record profits and laid the marker for how to run a successful team, is not just unable to buy players, but needs to sell players. Liverpool are broke. More than broke, they owe a guy named “Vinnie” a lot of money and he’s coming to collect.

Liverpool Operations Don’t Make Money

Liverpool has in recent years announced record profits and made headlines for their ability to generate money. While all of these headlines look great and make fans dream of the team’s ability to turn those profits into expensive players and a super-team, the reality is not as glitzy.

Looking at the actual financial statements of the team (aka accounting geekdom), the Liverpool team actually doesn’t make a lot of money. And that’s putting it pretty positively, because Liverpool’s operations made a little over £7 million in 2017-18 and less than £1 million in 2018-19. Their profit came from “profit on disposal of players’ registration”, a fancy way to say the sale of players. To put it bluntly, Liverpool makes no money from operations, only from selling players.

So the team’s regular operations barely break even and they need to sell players to keep the money train rolling. When Liverpool acquired Alisson Becker and Virgil Van Dijk, the public looked and saw astronomical fees that proved Liverpool had the finances of a top team. But those acquisitions were only possible due to the sale of Philippe Coutinho. That would explain the “euphoric celebration” in the Liverpool boardroom for the sale, as opposed to the fan angst.

Unfortunately for Liverpool, their principal owner John Henry is not as wealthy as his fellow owners. Therefore Liverpool cannot rely on the bottomless pockets of ownership like Manchester City or Chelsea. And as such it’s all about the revenue that Liverpool as a team can generate.

2019-20 Numbers

The financial statements for 2019-20 are not available yet, but for an accounting professional with waaaay too much time on his hands (hi there!) it’s possible to infer where the numbers will end up. Without getting into mind-numbing detail that would make any non-accountant question their own existence, here is the high level view:

Decrease to bottom line (bad)

• Covid-19 precautions mean that Liverpool is playing in empty stadiums for 9 games in the season translating into an £18M loss of revenue compared to prior years
• Losing in the final 16 stage of the Champions League means that Liverpool will lose £37M compared to 2018-19
• Contract extensions and increased salaries will lead to higher player payments in 2019-20 of about £40M (compared to 2018-19)
• Player bonus for winning the EPL title of £4M total
• Increased costs related to COVID for the organization are not significant

Break Even

• Revenue from the EPL for games broadcast, winning the EPL title and international rights will decrease due to COVID and a lower domestic broadcast deal (compared to prior year) and will increase due to the higher internal rights deal (compared to prior year), but the amount will not change significantly (this is a best guess calculation as even the teams will not have enough information to calculate this right now; note that the Mirror is saying the merit payment will be £54 million compared to £36M in prior year which would be an increase of £18M but given that domestic rights went down it is difficult to see how this claim could be true)

Increase to bottom line (good)

• Revenue from the team winning Club World Cup of £4M
• Revenue from commercial operations of £18M (this is assuming a 10% increase from prior year which would be below 2018-19 increase but above the 5 year average)

All of this adds up to a shortfall of nearly £100M. Part of this is Covid related, part is not making it deep into the Champions League and part is having a team of some of the best players in the world. It would be worth noting that player salaries for this team are not outrageous and that most salaries are in line with actual performance on the field, basically leading to the fact that having the best team in the world (Liverpool are champions of the world) means that the team has to pay top dollar.

2020 Summer Transfers

This leads to the understanding that Liverpool will not be spending money in the summer of 2020 to acquire players to reinforce the team. In fact it is reasonable to expect that the Reds will be selling players to try to make up the current financial deficit, which actually puts them in violation of the UEFA Financial Fair Play (FPP) rules (temporarily). The actual FPP amount that can show as a loss is over a 3 year period and UEFA is making changes due to the effect of Covid-19, but the effect for the team in the 2020 transfer window is clear.

With the team’s operations only really able to break even, Liverpool has previously managed to generate a profit through the sale of players, and it is that profit where the previous purchase of players came from. So with an unexpected and unprecedented loss from 2019-20 operation, it will be up to the sale of players to make up the difference. And that all translates into the fact that Liverpool will not have the money to make a major splash in the summer transfer window of 2020.

This has already been seen as the team allowed prospective acquisition Timo Werner to move to Chelsea for what just 6 months ago was assumed to be an incredibly reasonable transfer fee of £48M. But now a transfer of this magnitude will be out of the question for Liverpool. In fact it is more than likely that the team will be looking to get top dollar for their peripheral players (Shaqiri, Karius, Lovren) to help cushion the loss that the team’s operations will see in 2019-20.

All of this means that in 2020-21 Jurgen Klopp and Liverpool’s championship hopes will be resting on youngsters such as Neco Williams and Curtis Jones being able to provide relief and strong minutes to what will be a top heavy team. For those who previously hoped the “kids” would one day reach the calibre necessary to wear the Liverpool jersey, because of the team’s finances, that day will be the 2020-21 season, and the “kids” will be the cavalry.

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NOTE: Not being part of the actual Liverpool financial team, assumptions needed made that:

• Liverpool’s 2019-20 finances would be similar to prior years with no major changes (prior years were reviewed and a baseline for revenue and expenses was established)
• Domestic broadcast rights have gone down from last year which will affect the split all teams receive including the merit portion Liverpool will receive for winning the league.
• International broadcast rights have increased (more than domestic went down however those are split evenly by team so Liverpool winning the title doesn’t offer more money that other teams) but the actual numbers are not publicly available so it is a best estimate
• The current exchange rate between Euro and Pound has been used